YOUNG REVIEW CONFIRMS URGENT NEED FOR LIFEBOAT AMENDMENTS
Dr Ros Altmann
16 July 2007
The Interim Report of the Financial Assistance Scheme Review of Assets published today by the DWP, confirms that it is urgent for the Lords amendments to the Pensions Bill to be passed by the Commons tomorrow. All Opposition parties will be supporting these amendments. It is hoped that Labour MPs will vote with their conscience and recognise the urgency of approving these proposals, to ensure a fair and final resolution of the scandal of pension scheme wind-ups which has dogged pensions in general and Labour in particular for the last few years.
Despite making several improvements to the Financial Assistance Scheme (FAS) since it was announced in 2004, the Government has consistently resisted increasing the payments to bring them into line with the amounts received by scheme members in the Pension Protection Fund (PPF). The Government's own figures show that this would cost just £20m a year for the next 50 years (or a net present value of £640m). Helpfully, the DWP's own review of scheme assets is now indicating that there are ways of funding this cost, without extra calls on taxpayers' money.
The report endorses all the following elements of the Lords amendments:
• the urgent need to halt the annuitisation of every scheme
• ways to make better use of existing scheme assets
• finding unclaimed assets for a Lifeboat fund. The Review calculates that a scheme such as that set up in Ireland in 2003, to collect unclaimed life policies, could collect £243m in its first year and then a further £70m a year thereafter - which is many times the £20m a year required to increase FAS to PPF levels!
• it will take a few years to collect in the unclaimed assets which validates an emergency Lifeboat being set up now, then being repaid later
• transferring administration of failed schemes to the PPF (which would allow trustees to pay while waiting for the bureaucracy and data to be improved)
The Review suggests all these could deliver a much better and fairer solution, at no extra costs to the taxpayer, than the current FAS arrangements. The House of Lords and all independent commentators recognise that it is vital to help the victims more and to help them NOW. The amendments, if passed, would do just that. Tomorrow, MPs have an opportunity to force Ministers to rescue these people properly at last.
The Review also clearly rules out the possibility of using pension fund trust assets and orphan assets, so the fears of the insurance lobby are not well-founded.
It would be very sad if party politics prevented MPs from doing the right thing tomorrow. I hope they will care enough about the suffering of their constituents to force through a solution immediately, rather than forcing the victims to wait even longer for justice.
The Review has particularly endorsed the following aspects of the Lords amendments to the Pensions Bill (these are amendments 15 to 24).
Halting annuitisation is urgent: The Assets Review has found that 'the current FAS scheme is not the best way of ensuring good value' (p.29) and that there is a real danger of 'a significant part of the remaining assets being annuitised soon' (p.15). Having identified that there is well over £1billion of assets in failed schemes, the amendments' requirement to put the annuitisation process on hold for a while would ensure that the assets are still there by the time the final report is released at year end. Having concluded that 'the current process of annuitisation on a scheme by scheme basis is unlikely to offer the best use of residual scheme assets', (p.19) it would be a dreadful shame if the trustees had annuitised all the assets before the Review is finalised!
Other sources of funding outside taxpayer's money: The Review then also looks at how the payments from the FAS might be increased, without extra public funding and it has identified a number of sources, again these endorse the proposals in the Lords amendments to the Pensions Bill which MPs are being asked to approve tomorrow.
Better use of scheme assets: Firstly, making better use of the assets in the schemes would give better value and allow payments to increase. This again argues for putting the annuitisation process on hold.
Use unclaimed assets: Secondly, the Review highlights that there could be unclaimed assets in life policies which would provide more than enough money to fund an increase in the payments from FAS to PPF levels. Importantly, the Review clearly says that there are no unclaimed assets in defined benefit pensions and orphaned assets, so the fears expressed by the insurance industry have proved unfounded.
However, the Review shows that it would be possible to use unclaimed Life Assurance policies, as has been done in other countries. In particular, the Review quotes the experience of Ireland, which has collected £253m in unclaimed life policies since 2003 and the Review calculates that 'the equivalent figures for the UK would be £243million in the first year and then £70m a year thereafter' (p.60). This would be many times the amount that is needed to increase FAS to PPF levels.
Emergency loan for Lifeboat fund: Therefore, the proposal to fund the Lifeboat Scheme initially with an emergency loan would allow the victims to be paid pending the collection of unclaimed assets, which the Review admits could take a few years. This is the practical and compassionate way of assisting those who are still struggling without their pensions, some of whom have been suffering for many years, some terminally ill and many still working well beyond retirement. Rather than making the victims wait for money to be found, the Government can pay them now and then look to mitigate the costs later. The increase to PPF levels requires no more than £20m a year for 50 years, and, if the Review finds that using existing scheme assets is better value, the costs will fall well below this.
Transfer administration to the PPF: The Review endorses the use of the PPF as the most efficient means of delivering assistance. For example, the Review points to the advantages of operating FAS along the lines of the PPF and managing the scheme assets, rather than annuitising, by saying 'there could well be benefits from running any FAS based funds alongside the PPF to achieve further economies of scale'. (p. 31) Indeed, when considering how to best use the remaining scheme assets, the Review concludes that a fund-based model like the PPF is the favoured option.
Dr. Ros Altmann
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